Reckoning Day for US Dollar Coming Next Year

No, Peter Schiff is not Japanese. The strategist predicting the dollar’s imminent demise is Daisuke Uno, who works at Sumitomo Mitsui Banking Corp. You can find details at Bloomberg but Uno is basing his prediction on Elliot Wave theory and claims this next move down in the dollar is the culmination of the super-cycle that’s been building since 1971.

I am reminded of another infamous Elliot Wave practitioner, Robert Prechter, who wrote a book called Conquer the Crash in 2002. On the eve of a market recovery from the tech crash, Prechter predicted a deflationary depression and then had to watch the market climb to nominal record highs while the world was supposed to be suffering from the second coming of the Great Depression.

I read the book in 2007 and frankly, I found it quite informative and insightful other than the inconvenient fact that most of his predictions were completely off-mark, which could not help but dent Prechter’s credibility. But Prechter and his publishers think he was early, not wrong, since a revised edition is due to hit stores in a few weeks.

As for Uno’s prediction of another 50% drop in the dollar by next year, it is difficult to visualize what would trigger such a fall or what the world economy would look like if that happened. All of the export economies would be devastated. What would the US economy look like? Where will the price of oil be? What about the auto industry? How will we buy more iPhones, among other things, since they are made overseas?

To his credit, Uno correctly predicted moves in both the yen and the Dow Jones Industrial Average after Lehman Brothers failed last year. But as Prechter’s case illustrates, timing is everything and strategists straddle a high-wire act between being a market prognosticator or a broken clock.

I am not discarding Uno’s prediction; as I have stated in the past, sometimes imagination is more important than knowledge and investors need the ability to see implausible situations forming (just see yesterday’s post regarding Bill Miller, whose lack of imagination led him to completely misread the financial crisis). In fact, Warren Buffett implied this ability to see risks outside the frame of historical reference and/or personal experience was the most important trait for any prospective successor to possess.

Regardless, here at Enlightened American, we have been wary of US dollar risk for some time. Uno’s prediction, while interesting, does not change the way we pursue our investment strategies, which already seek to mitigate US dollar exposure. If readers are interested in pursuing such strategies, please consider joining our Premium Research Service. You can find out more here.

Leave a Reply